1.Section 47 provides a Treasury power to make regulations which will have the effect of allowing corporate and partnership members of the Lloyd’s insurance market to claim tax relief on establishing reserves equivalent to those made by general insurance companies under the equalisation reserves rules made by the Financial Services Authority (FSA). These rules recognise the volatility of certain classes of general insurance business and the possibility of large, but intermittent, losses.
2.Subsection (1) contains the power to make regulations applying the provisions of section 444BA of the Income and Corporation Taxes Act 1988, subject to modifications, in relation to “equivalent Lloyd’s reserves”. Section 444BA is the principal provision governing the relief given to general insurance companies on account of the equalisation reserves they are required to maintain by the FSA.
3.Subsection (2) explains the meaning of “equivalent Lloyd’s reserve”.
4.Subsection (3) defines the scope of the regulation making power.
5.Subsection (4) contains definitions.
6.Equalisation reserves are created by general insurers to cover claims they may be called upon to pay that arise from classes of business, for example property damage, that can give rise to intermittent but sometimes very large payments.
7.General insurance companies are required by the FSA to make these reserves under legislative rules designed to protect their capital base. When these rules were introduced, the equivalent rules governing the Lloyd’s insurance market were very different, and even now the unique structure of the Lloyd’s insurance market results in capital maintenance rules significantly different from those of general insurance companies.
8.However, over the years there has been convergence, and the availability of relief to general insurance companies but not to corporate and partnership members of Lloyd’s has increasingly been seen as anomalous and a disadvantage to the Lloyd’s market.
9.The section provides for a relief to corporate and partnership members of Lloyd’s broadly similar to that available to general insurance companies for amounts reflected in equalisation reserves.